The biggest obstacle stunting the growth of many farms is a perpetual lack of funds. With farm loans, you can avoid this problem and easily boost your revenues.
Everyone knows that agriculture is a capital intensive business. You need substantial capital to start it. You also need money to maintain it.
If you don’t inject sufficient funds into an agricultural business when necessary, growth and success will be almost impossible. However, regularly coming up with more funds is quite difficult as farmers often have an irregular cash flow.
This is usually due to seasonal trends and unforeseen disasters. And sometimes, a client might default on payment, which could hinder your productivity and impact your revenue.
Fortunately, with agricultural or farm loans, you can overcome all these troubles. You can plug the holes in your cash flow and grow your farm business without too much struggle.
But what are agricultural loans and how can they benefit your farm business? We’ll discuss that in this piece.
What are Farm Loans?
Farm loans are financial packages provided to help farm owners maintain a strong, resilient, and profitable farm. They can be provided by the government, traditional banks and other credit facilities.
One example is a farm investment loan. Offered by the Australian government, this credit facility provides funding of up to $2 million. The repayment period is 10 years. And if there’s any balance remaining, you can refinance it with a commercial lender.
If you’re wondering how to get a loan to buy a farm, a farm investment loan is the answer.
Another example is an agricultural term loan. There are also livestock and equipment loans as well as other lines of credit. These loans vary in structure and often have several criteria for eligibility. They can also be secured (requires collateral) or unsecured (doesn’t require collateral).
With these farm loans, you can carry out activities or execute projects that will grow your agricultural business. What are these activities and projects?
#1 – Purchasing Essential Farm Equipment
It is practically impossible to run a farm successfully without specialized equipment. You need tractors, silos, generators, and other essential machines to increase your productivity. You also need them to make your operations smooth and efficient.
However, high-quality farm machines come with hefty price tags. In fact, you’ll be surprised by how much they cost if you’re new to the industry. But with a farm equipment loan, you can easily shoulder the financial burden.
The good thing about farm equipment loans is that they are uncollateralized. This means you don’t need to put up collateral to be eligible to apply for them.
Once you’re approved, you’ll be provided with money to purchase the equipment. Then you could just repay the loan (plus interest) for a selected period of years. The machine becomes truly yours after you complete the payments.
Equipment loans are substantial investments. So, before you make a commitment, thoroughly research the loan terms. Be aware of the machine’s price and maintenance costs. Also ensure that you have a genuine need for that particular equipment in your business.
#2 – Covering Operating Costs
Getting started in agriculture is often tough. That’s because you’ll probably have a negative cash flow as you’re financing some debts. This could also happen when you’re years into the business. After all, there will always be periods when you’re short of cash.
During these periods, you still need to cover interim farm expenses. This includes paying your workers, loading up on farm supplies, and so on. If you can’t pay these bills, your farm won’t run smoothly and this could impact your revenues negatively.
With a line of credit, you can easily draw sufficient cash to take care of those expenses.
#3 – Expanding Your Operations
One obvious way to grow your farm is to expand your operations. This is achieved by adding more acreage to your farm. You may also need to construct new farm houses and purchase new farm machinery.
These additions boost your farm output and revenue.
However, buying land, constructing new properties, and purchasing new machines require capital investments. You need a substantial amount of money to acquire them. A farm loan can help you in this regard.
#4 – Refinancing Old Loans
Sometimes, you may want to refinance an outstanding agricultural loan. This means using proceeds from a new, lower interest loan to finance an older loan. You would still have an outstanding loan, but you’re saving money with the lower interest payments.
This may sound strange, but it happens regularly in the agriculture business.
The key thing is to ensure that your interest savings is more than the refinancing costs. So, it’s best that you speak with your financial advisors before taking the plunge.
#5 – Battle Droughts and Other Adverse Weather Conditions
Australia experiences droughts, floods, storms and other natural disasters from time to time. These events are often unforeseen and can cause serious damage to your farm.
To avoid serious damage to your farm assets, you’ve got to prepare well for these events. You have to build irrigation channels and optimize your farm to battle them. However, it’s impossible to plan for every eventuality. So sometimes, the situation could go out of hand and your farm could be affected.
Whatever the case is, a farm loan can help you remain in business. They can help you rebuild easily and bounce back stronger and better.
#6 – Weathering Price Crises
Everyone knows that farming can be a fickle business. Your crop and livestock output varies each year and the prices of commodities are seriously volatile. Basically, you’re at the mercy of consumers.
During those slow periods, a farm loan can come in handy. They can keep your business going through the ups and downs. They can help you weather out those moments.
Once you’re back on your feet, you can pay the loans and keep growing your farm.
Grow Your Farm With Agricultural Loans
The biggest reason for the failure and lack of growth of most farms is inadequate funding. You can avoid this problem if you can learn how to maximize agricultural loans.
These loans can provide sufficient funds to cover operating costs and buy essential farm machines. They can also help you withstand and overcome difficult and trying periods. Agricultural loans can help you build a farm that is strong, resilient, and profitable.
If you need further assistance on agricultural loans, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.